Mortgage wars ramp up as TD matches BMO’s record low variable rate
By: Jessica Mach on May 15, 2018
Toronto-Dominion Bank lowered its five-year variable mortgage rate to 2.45% on Tuesday — matching the historic discount that the Bank of Montreal started offering last week.
TD’s new rate, which is 1.15 percentage points lower than the bank’s prime rate, applies to both new and renewed mortgages. It also applies to the variable-rate term portion of some TD home equity lines of credit.
As is the case with BMO’s discount, the rate will be available to TD customers through May 31st.
BMO made headlines last week with its discount — the lowest ever offered by any of Canada’s six major banks since at least 2012, according to data from LowestRates.ca. The bank’s special variable rate is even lower than the discretionary rates — or non-advertised rates that are given to clients with exceptional credit scores — offered by some of the other big banks.
TD’s move on Tuesday is the latest effort by Canada’s major banks to push people towards choosing variable rate mortgages.
Ahead of the Bank of Canada’s rate announcement in April, TD was the first bank to lower its five-year variable rate from 2.95% to 2.85%. A week later, the bank had also increased its five-year fixed rate by 45 basis points to 5.59% — a new post-recession high.
By May, the country’s other major banks had all upped their five-year fixed rates as well, giving homebuyers and owners a bigger incentive to choose variable.
These moves reflect the rising cost of borrowing money as yields on government bonds continue to increase. At the same time, the Bank of Canada is expected to increase interest rates this year (government bonds have more of an impact on fixed rates, while the BoC’s moves tend to influence variable rates more).
If the BOC hikes further, banks will profit from customers who have chosen variable-rate mortgages. Hikes also tend to push more people to choose fixed-rate mortgages, so the discounts offered by Canada’s major banks for variable rate mortgages could also be interpreted as an effort to “balance the books,” according to one mortgage expert.
If you choose to take advantage of the variable rate mortgages from TD or BMO, make sure you budget for possible rate increases, as both variable and fixed rates have increased in the past year.
